The office of General Counsel issued the following informal opinion on August 31, 2001, representing the position of the New York State Insurance Department.
Re: Leasing of Rental Space by an Insurance Agency from a Financial Institution.
Has the General Counsel Opinion #84-14 dated October 12, 1984, which states that there is no prohibition against an unlicensed financial institution leasing space to a life insurance agency where the rent is based on a percentage of the volume of business written, but that any endorsement or recommendation to the customer by the unlicensed party renting space to the insurance agency may convert the rental fee from one of rent to one of commission, been superseded or is it still the law?
The above mentioned General Counsel Opinion has been superseded in part by the recent amendments to N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney 2000) as they pertain to referrals by unlicensed persons.
No facts were provided.
N. Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney 2000), as amended by Ch. 418, L. 2000, were recently amended to permit unlicensed persons to receive compensation for referrals provided that the referral does not include a discussion of specific insurance policy terms and conditions and, the compensation to the unlicensed person is not based upon the purchase of insurance by the referred person. As such, the portion of the General Counsel Opinion #84-14 that prohibits referrals by financial institutions has been superseded.
The Office of General Counsel, in a more recent opinion dated June 16, 2001, readdressed the issue of whether an insurance agency may lease space within the premises of a financial institution (a bank). The June 16, 2001 opinion, reaffirms the portion of the General Counsels position in Opinion #84-14 which states that a financial institution is not prohibited from leasing space to an insurance agency where the rent paid by the insurance agency is based on a percentage of the volume of business written by the agency.
Moreover, an unlicensed financial institution may endorse or recommend a customer to an insurance agency to whom it is leasing space provided however, that the referral does not include a discussion of the specific insurance policy terms and conditions and, the compensation to the financial institution is not based upon the purchase of insurance by the referred person.
However, if the rent is calculated on a percentage of the total volume of insurance business written by the life insurance agency and, that includes sales resulting from referrals made by the financial institution to the insurance agency, the rental payment would represent the payment of commissions by the insurer to an unlicensed company (the financial institution). This is prohibited by N.Y. Ins. Law § 2114 (McKinney 2000), which states in relevant part:
(a)(1) No insurer or fraternal benefit society doing business in this state shall pay any commission or other compensation to any person, firm or corporation, for any service in obtaining in this state any new contract of life insurance or any new annuity contract, except to a licensed life insurance agent of such insurer or of such society, . . .
N.Y. Ins. Law § 2114 (a)(1) (McKinney 2000).
Please be aware that the above discussion pertains only to the Insurance Law and not to any other laws that may govern financial institutions.
For further information you may contact Senior Attorney Adiza J. Mohammed at the New York City Office.